Postcode lottery

Local pay in the public sector is a good idea, brutally hard to implement

SHOULD two workers be paid different amounts of money for doing the same job, simply because of where they live? The government is warming to the idea. It is gradually forging plans to end arrangements by which up to 3.3m workers in the public sector (half the total number) have their wages fixed by negotiations at national level.

Conservatives have long complained that parts of the country are too reliant on state jobs, and that the high pay they offer makes it hard for private firms to attract staff. George Osborne, the chancellor of the exchequer, has pledged to review the pay gap between the state and commercial sectors. In all regions except London, public-sector jobs pay more than private-sector ones with the gap tending to widen the farther you get from the capital (see map).

Mr Osborne's officials emphasise that pay accounts for around 30% of all public spending, so restraint on that score is essential to improving the public finances, as well as encouraging enterprise. But hurdles and booby traps await.

Since the late 1960s government bureaucracy has been gifted to regions afflicted by industrial decline. They lost coal mines and shipyards—and gained vehicle licensing and social security offices. Still, the pattern is complex. Within each region there are hot spots such as city centres, where private-sector pay is high, often surrounded by poorer areas.

A possible refinement has been mooted by Chloe Smith, a Treasury minister. “Zonal” pay areas, like those already operated by the courts service, would be fairer than regional deals, she says. Parts of the country as far-flung as Norwich, Newcastle and Exeter would be grouped together. Yet such a subtle approach could lead to innumerable, politically fraught, arguments about local conditions. In Norwich, for example, private-sector pay rates are comparable with those in Newcastle. But house prices are higher.

Stephen Bevan of the Work Foundation, a think-tank, points to another problem. Most public-sector jobs are held by women, and the pay gap between women and men in the state sector is smaller than it is in the private sector. Suppressing state pay outside London and the south-east could thus be portrayed as an attack on women. And the fight against Scottish independence would be that bit harder if the government were simultaneously threatening to dock public-sector wages north of the border.

As is often the case with public-sector reform, many of the mechanisms to reward good practice and force out poor or lazy performers already exist, but are under-used. A decade ago a Labour government introduced reforms in the NHS (building on earlier Conservative moves) which make pay scales more discretionary. Charles Clarke, a former Labour cabinet minister who backed the changes, says ending national pay deals could make the public sector more efficient. He doubts, however, that more local pay bargaining would result in a blossoming private sector any time soon.

Closing the public-private efficiency gap is a sound aim. But postcode pay looks more like a muddle than a silver bullet. It might be better to avoid fiddly schemes and simply give public-sector employers more flexibility on pay—and some tough incentives to use it.